ARD - Ardagh Group S.A. - Second Quarter 2020 Results

LUXEMBOURG, July 23, 2020 /PRNewswire/ -- Ardagh Group S.A. (NYSE: ARD) today announced its results for the second quarter ended June 30, 2020.

Paul Coulson, Chairman and Chief Executive, said, "The Group performed well in the quarter, reflecting strong execution and the defensive end markets we serve. Earnings grew in Metal Beverage Packaging, while Glass Packaging's performance was very resilient. Demand for sustainable packaging remains strong and we continue to progress our growth investment projects. We also availed of favourable markets to improve our capital structure and ended the quarter with total liquidity of $1.6 billion. Overall trading trends in June were positive and we are well-positioned to benefit from further improvements in market demand."

• Revenue for the quarter of $1,606 million was 5% lower than the prior year at constant currency, with growth of 3% in Metal Beverage Packaging offset by a 7% reduction in Glass Packaging.
• Volume/mix for the Group declined by 3%, as growth of 1% in Metal Beverage Packaging was offset by an 8% reduction in Glass Packaging.
• Adjusted EBITDA of $271 million for the quarter, a reduction of 11% at constant currency on the prior year.
• Global beverage can shipments increased by 3% in the quarter, led by strength in Europe. Total beverage can shipments increased by 2% in the year to date, with specialty can shipment growth of 7%.
• Metal Beverage Packaging performed strongly, reflecting continued strong demand and good operational execution. Adjusted EBITDA of $139 million, representing 51% of Group Adjusted EBITDA, increased by 2% at constant currency, with growth of 5% in the Americas and a stable outturn in Europe.
• Resilient performance in Glass Packaging, with strength in food end markets mitigating the impact of on-premise closures. Adjusted EBITDA of $132 million, a margin of 17.0%, reflected lower volume/mix and under absorption of fixed overheads.
• Business Growth Investment projects continued to progress during the period, to support growth in demand for sustainable packaging.
• Total liquidity of $1.6 billion at June 30, 2020, including $1.45 billion in cash.
• Capital structure further improved during the quarter, with an average debt maturity of six years and no bond maturities before 2025.

Group Performance

Revenue of $1,606 million decreased by 6% in the three-months ended June 30, 2020, compared with the same period last year. On a constant currency basis, revenue decreased by 5%, due to lower COVID-19 impacted demand, primarily in Glass Packaging, as well as the pass through of lower input costs in Metal Beverage Packaging, partly offset by favourable volume/mix effects in Metal Beverage Packaging.

Second quarter Adjusted EBITDA of $271 million decreased by 13% at actual exchange rates, compared with the same period last year. On a constant currency basis, Adjusted EBITDA decreased by 11%, as unfavourable volume/mix effects and lower production resulting in unfavourable fixed cost absorption, primarily in Glass Packaging, was partly offset by favourable volume/mix effects in Metal Beverage Packaging and other operating cost savings.

Metal Beverage Packaging Europe

Revenue decreased by $16 million, or 4%, to $395 million in the three months ended June 30, 2020, compared with $411 million in the three months ended June 30, 2019. Excluding unfavourable foreign currency translation effects of $13 million, revenue decreased by $3 million principally reflecting the pass through of lower input costs, partly offset by volume/mix growth of 2%.

Adjusted EBITDA decreased by $2 million, or 3%, to $70 million in the three months ended June 30, 2020, compared with $72 million in the three months ended June 30, 2019. Excluding unfavourable foreign currency translation effects of $2 million, Adjusted EBITDA was in line with the prior year, as favourable volume/mix effects were offset by lower selling prices.

Metal Beverage Packaging Americas

Revenue decreased by $21 million, or 5%, to $435 million in the three months ended June 30, 2020, compared with $456 million in the three months ended June 30, 2019. The decrease in revenue principally reflected the pass through of lower input costs, partly offset by favorable volume/mix effects of 1%.

Adjusted EBITDA increased by $3 million, or 5%, to $69 million in the three months ended June 30, 2020, compared with $66 million in the three-month period ended June 30, 2019. The increase was mainly driven by favourable volume/mix effects and operating cost savings.

Glass Packaging Europe

Revenue decreased by $44 million, or 11%, to $368 million in the three months ended June 30, 2020, compared with $412 million in the three months ended June 30, 2019. Excluding unfavourable foreign currency translation effects of $12 million, revenue decreased by $32 million, or 8%, mainly due to unfavourable volume/mix effects of 10%, primarily as a result of COVID-19 impacted demand, partly offset by contracted price increases.

Adjusted EBITDA decreased by $23 million, or 23%, to $76 million in the three months ended June 30, 2020, compared with $99 million in the three months ended June 30, 2019. The decrease primarily reflected unfavourable volume/mix effects and lower production resulting in unfavourable fixed cost absorption, partly offset by contracted price increases and other operating cost savings.

Glass Packaging North America

Revenue decreased by $25 million, or 6%, to $408 million in the three months ended June 30, 2020, compared with $433 million in the three months ended June 30, 2019. The decrease in revenue reflected unfavourable volume/mix effects of 6%, principally due to the impact of COVID-19 on demand. 

Adjusted EBITDA decreased by $17 million, or 23%, to $56 million in the three months ended June 30, 2020, compared with $73 million in the three months ended June 30, 2019. The decrease was mainly as a result of unfavourable volume/mix effects and lower production resulting in unfavourable fixed cost absorption and increased costs.

Financing Activity

On April 7, 2020, the Group issued $500 million 5.250% Senior Secured Notes due 2025 and on April 8, 2020, the Group issued $200 million add-on 5.250% Senior Secured Notes due 2025. Net proceeds from the issuance of the notes were used to redeem in full a $300 million term loan credit facility on April 8, 2020 and for general corporate purposes.

On June 2, 2020, the Group issued $1,000 million 5.250% Senior Notes due 2027. The net proceeds from the issuance of the notes were used to repurchase, by means of a tender and consent offer, approximately $900 million of the $1,700 million 6.000% Senior Notes due 2025, together with applicable redemption premium and accrued interest.

 On June 4, 2020, the Group issued $715 million add-on 4.125% Senior Secured Notes due 2026. Proceeds from the issuance of the notes, net of expenses, were used to redeem in full the $695 million 4.250% Senior Secured Notes due 2022, together with applicable redemption premium and accrued interest.

On June 10, 2020, the Group issued €790 million 2.125% Senior Secured Notes due 2026. Proceeds from the issuance of the notes, net of expenses, were used to redeem in full the €741 million 2.750% Senior Secured Notes due 2024, together with applicable redemption premium and accrued interest.

COVID-19

The outbreak of the COVID-19 pandemic and measures to prevent its spread, including restrictions on travel, imposition of quarantines and prolonged closures of workplaces and other businesses, including hospitality, leisure and entertainment outlets, and the related cancellation of events, has impacted our business in a number of ways. This has included an adverse effect from reduced global economic activity and resulting demand for our customers' products and, therefore, the products we manufacture. It may also adversely affect our ability to operate our business, including potential disruptions to our supply chain and workforce. The COVID-19 impact on capital markets could also impact our cost of borrowing.

The ultimate significance of the impact of these disruptions, including the extent of their adverse impact on our financial and operational results, will be determined by the length of time that such disruptions continue which will, in turn, depend on the duration of the COVID-19 pandemic, the impact of governmental and other regulations in response to the pandemic and the resulting effect on macroeconomic activity and consumer behavior.

During the three months ended June 30, 2020, our Glass business, in particular, was affected, and experienced reductions in customer demand and therefore revenue as a direct consequence of the various global lockdowns and the related impact to "on-premise" sales. The aforementioned reduction in customer demand caused loss of margin in addition to excess capacity costs as a result of lower production volumes.  In addition, throughout the Group, incremental COVID-19 related costs, including increased safety and cleaning costs were incurred.

Our response to the COVID-19 across our business operations can be summarized as follows:

Business Continuity: We are a leading supplier of consumer packaging solutions, comprising metal beverage cans and glass containers, primarily for the beverage and food end markets in Europe, North America and Brazil. In the markets we operate in, Ardagh is an essential provider of packaging to the beverage and food supply chain. Our people are deemed "Essential Critical Infrastructure Workers" under the guidance of the U.S. Department of Homeland Security, as are our customers. Where other governments issued guidance, we received equivalent designations in all other countries where we operate. We will continue to manage our capacity in response to the evolution of demand.

Employee health and safety: The health and safety of our 16,000 employees and their families and communities, as well as our contractors, suppliers and customers has been our highest priority since the outbreak of the crisis. We established a Group-wide task force to ensure an effective and consistent response across our business. Regular updates have been issued and a dedicated intranet site established to facilitate effective communication of recommendations, policies and procedures. Communication with all stakeholders has been a core element in our response.

Measures continue to evolve in line with best practice and with recommendations by national health authorities and the World Health Organization. Initiatives introduced to date have included: enhanced hygiene procedures in all locations, including increased cleaning in our production facilities; increased investment in personal protective equipment; adapting work practices and routines to ensure social distancing; establishing procedures for self-isolation; travel advisories including restrictions on all non-essential travel, prior to broader restrictions on any travel; restrictions on visitors to our production facilities or by our employees to external facilities; actively encouraging and ultimately requiring remote working for non-operational personnel, and enhancing our IT capability to facilitate increased remote working.

Strong liquidity: As a precautionary measure in response to the increased macroeconomic uncertainty related to COVID-19, we increased our cash on hand and total available liquidity, by drawing on our Global Asset Based Loan facility. As outlined above in financing activities, cash and cash equivalents was increased further during the second quarter and the Group also enhanced its capital structure by refinancing certain debt obligations, resulting in the Group having no Senior Secured or Senior Notes maturing before 2025.

The Group had $1,448 million in cash and cash equivalents and restricted cash as of June 30, 2020, as well as available but undrawn liquidity of $142 million under its credit facilities.

Earnings Webcast and Conference Call Details

Ardagh Group S.A. (NYSE: ARD) will hold its second quarter 2020 earnings webcast and conference call for investors at 3 p.m. BST (10 a.m. ET) on July 23, 2020. Please use the following webcast link to register for this call:

Webcast registration and access:

https://onlinexperiences.com/Launch/QReg/ShowUUID=486C6C81-CB84-42E7-AFC3-125342375BA9

Conference call dial in:

United States: +1855 85 70686
International: +44 (0) 3333 000 804
Participant pin code: 16916966#

Slides and quarterly report

Supplemental slides to accompany this release are available at http://www.ardaghgroup.com/investors.

The second quarter 2020 interim report for ARD Finance S.A., issuer of the Senior Secured Toggle Notes due 2027, will be published in due course and available at http://www.ardholdings-sa.com/.

About Ardagh Group

Ardagh Group is a global supplier of infinitely recyclable, metal and glass packaging for the world's leading brands. Ardagh operates more than 50 metal and glass production facilities in 12 countries across three continents, employing over 16,000 people with sales of $6.7bn.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that the forward-looking information presented in this press release is not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this press release. Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Non-GAAP Financial Measures 

This press release may contain certain consolidated financial measures such as Adjusted EBITDA, working capital, operating cash flow, Adjusted free cash flow, net debt, Adjusted profit/(loss), Adjusted earnings/(loss) per share, and ratios relating thereto that are not calculated in accordance with IFRS or US GAAP. Non-GAAP financial measures may be considered in addition to GAAP financial information, but should not be used as substitutes for the corresponding GAAP measures. The non-GAAP financial measures used by Ardagh may differ from, and not be comparable to, similarly titled measures used by other companies.